In my little book How to Change the World I use the PDCA model to…
Again and again I am asked (or feel compelled) to explain why agile software development fits nicely with fixed price contracts. Some people still think that a fixed price contract requires a detailed up-front requirements study, to accurately calculate the costs of the project. But that's not correct.
These are the arguments that I use frequently:
For time-and-material contracts, working with user stories, or some other form of high-level requirements, is the smart thing to do. Many agile experts have already explained this a zillion times. But for fixed-price contracts, fixing the scope using high-level requirements, and not detailed requirements, seems even more crucial to me. The need to throw away old requirements is much higher, and detailed requirements do not enable you to re-negotiate the work that is involved to implement them.
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